Impact of Capital Structure on Profitability: Panel Data Evidence of the Telecom Industry in the United States

Houshang Habibniya, Suzan Dsouza, Mustafa Raza Rabbani, Nishad Nawaz and Rezart Demiraj
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Houshang Habibniya: Accounting Department, College of Business Administration, American University of the Middle East, Egaila 54200, Kuwait
Suzan Dsouza: Accounting Department, College of Business Administration, American University of the Middle East, Egaila 54200, Kuwait
Mustafa Raza Rabbani: Department of Economics and Finance, University of Bahrain, Zallaq P.O. Box 32038, Bahrain
Nishad Nawaz: College of Business Administration, Kingdom University, Riffa P.O. Box 40434, Bahrain
Rezart Demiraj: Accounting Department, College of Business Administration, American University of the Middle East, Egaila 54200, Kuwait

Risks, 2022, vol. 10, issue 8, 1-19

Abstract: Debt finance, when considered a source of finance, always leads to financial risk; however, it is also considered a source of increased profitability in the normal business scenario. It has always been challenging to find the correct debt equity combination. In the discussed sample of the telecom industry in the USA, an abnormally high total liability-to-total assets ratio was observed. Thus, it is inclined to investigate the capital structure (CapSt) effect on firms’ profitability. By taking annual data of the telecom industry from 2012 to 2020 in the USA, unbalanced cross-sectional data (panel data) comprising 421 firm-year observations for 72 firms were studied using pooled panel regression, univariate analysis, correlation, and descriptive statistics models. We decided to test the impact of CapSt (Total Liabilities to Total Assets (TLsTAs) and Total Equity to Total Assets (TETAs)) on the profitability (Return on Assets (ROA) and Return on Equity (ROE)) of firms in the telecommunication industry in the USA. The results reveal that the ratio of TLsTAs has a significant impact on ROA, and TETAs has a significant impact on ROA. However, TLsTAs and TETAs have no impact on ROE.

Keywords: telecommunication industry; profitability; capital structure; panel data (search for similar items in EconPapers)
JEL-codes: C G0 G1 G2 G3 K2 M2 M4 (search for similar items in EconPapers)
Date: 2022
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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